Ethereum: The Ultimate Collaborative Technology

This article is from Zhihu user Kepler-42B, author: Cryptodiario.

Index

Throughout history, humans have employed various collaborative technologies to organize their communities and achieve their goals. These collaborative technologies can be tangible tools and techniques or concepts based on shared beliefs—such as religion, law, political systems, and currency.

Blockchain technology represents the final stage of this historic innovation trajectory, which has facilitated the ways in which human society collaborates and organizes itself. However, some of its unique features (its inherent neutrality, resistance to censorship, and decentralization) make it a collaborative technology that is not plagued by the same flaws as its predecessors, such as capture by privileged groups and inconsistent incentive mechanisms.

In terms of on-chain activity, Bitcoin and Ethereum are the two largest public blockchain networks to date, and as collaborative technologies, they have generated the most significant economic impact. Both share the same theoretical foundation, values, and goals, attempting to position their native currencies as stores of value and potential global currency reserves. However, they differ in their approaches to achieving these goals.

In this article, I will attempt to explain why I believe Ethereum's strategy (acting as a temporary autonomous zone and economically becoming a sovereign digital jurisdiction) is superior, more sustainable, and potentially more successful than Bitcoin's strategy, and why Ethereum is better positioned to compete directly with other collaborative technologies and institutions in the real world.

But before detailing how Ethereum plans to achieve its ambitions, we must understand why store of value has historically been important for humanity as a collaborative technology.

Humans, a Social Animal

The fate of humanity is inextricably linked to social life. Humans are helpless at birth and are raised by families. Subsequently, they collectively receive education in public or private centers, where they participate in the process of schooling and upbringing alongside their peers. The labor field is merely an extension of this process, as even the most individualistic professions require a certain degree of social interaction.

We can consider that all of this began with the Neolithic Revolution, which brought about the discovery of agriculture, the abandonment of a nomadic lifestyle, the establishment of settlements, and the gradual emergence of the division of labor and specialization. However, long before this, humans were already social animals, living in mobile tribal organizations composed of hunters and gatherers, although their hierarchies were far less complex and their labor distribution more primitive.

Thus, collective living and collaboration are deeply ingrained in us. It is part of our DNA.

Human Collaborative Technologies

Through different types of collaborative technologies, the intrinsic drive for human survival in society will be fulfilled throughout history.

As I explained in the introduction, I am referring not only to physical and technological tools but also to "institutions" (imagined worlds, non-empirical realities), as explained by Yuval Harari in his work "Sapiens: A Brief History of Humankind": it is the result of humanity's ability to create stories and coordinate on a large scale in a flexible manner.

See https://zh.wikipedia.org/wiki/%E4%BA%BA%E7%B1%BB%E7%AE%80%E5%8F%B2

Early examples of such institutional collaborative technologies include religion, political systems, legal systems, and currency. The latter ideally serves as a good store of value, and thus, in relation to the theme of this article, it will be regarded as valuable.

These collaborative technologies will guide humanity toward increasingly complex organizational forms and will act as catalysts for new organizational systems. These new organizational systems will inevitably be pressured by forces of chaos, disintegration, and entropy. This paves the way for the emergence of new, more effective collaborative technologies in a self-reinforcing process. A good example of such a phenomenon is Lyn Alden's "The Fraying of The US Global Currency Reserve System."

For more on "The Fraying of The US Global Currency Reserve System," see https://www.lynalden.com/fraying-petrodollar-system/

Alden's article emphasizes that much of the organizational work that will define humanity's future and its development is related to the adoption of collaborative technologies aimed at facilitating sustained population growth through socio-economic activities.

Institutions (as the fundamental collaborative technologies of each society) establish the rules and conditions for accessing and exchanging scarce resources. All of this occurs under market logic and formulas that are acceptable to the entire society, thereby avoiding violence and chaos.

Religion, Legal Systems, and Currency

As Connor Wood and John H. Shaver explain in "Religion, Evolution, and the Foundations of Institutions: A Cognitive Model of Religion," humans have the capacity to create non-empirical worlds that are accepted by society as truths and are concretized through rituals and social behaviors. This cognitive ability to choose experiential realities initially appeared in the form of myths and religions but later evolved into legal and political systems, thereby facilitating human collaboration on a larger and more flexible scale—this was essential when humans decided to abandon a nomadic lifestyle and establish permanent settlements with different economic needs.

See "Religion, Evolution, and the Foundations of Institutions: A Cognitive Model of Religion"

The problem with these collaborative technologies is that they are inconsistent with the incentive mechanisms of collective members. This is the result of core design flaws that hinder them from achieving optimal neutrality. In fact, they are subject to governance processes, which are often initially controlled (or elected over time) by privileged groups that attempt to manipulate them for their own benefit.

Most ancient religions underwent a formalization process that led to the emergence of castes responsible for interpreting sacred texts, celebrating rituals, and deriving social norms. This monopoly on dogma, along with the privileges granted to priests or church figures in society, turned religion into a collaborative tool controlled by a few—thus, under its protection, the combination of incentives is difficult to optimize.

Similar situations arose with the emergence of political and legal systems, which were essential for the rise of the first civilizations, the promotion of urbanization, and the later consolidation of nation-states. Although legal and political systems were supposed to provide citizens with a fair competitive environment in which to interact and compete, the reality is that these institutions again handed their agendas over to the elite.

These elites used their privileged positions to gain benefits at the expense of other social groups—thereby undermining the ideal conditions for free markets and competition. An example of this is the strict financial regulations in the United States, which not only fail to protect the interests of ordinary citizens but also prevent them from accessing certain early investment opportunities, thereby consolidating the privileges of accredited investors and large financial groups.

Currency (considered in this article as a means of storing value) is one of the most important collaborative technologies in human history. Its function is essentially to determine rules and provide rewards to facilitate large-scale economic activities among market participants—essentially, it acts as a protocol.

The problem is that, like religious and political systems, currency can ultimately be exploited by certain players. In this case, they are the central banks and governments responsible for issuing and regulating money.

Blockchain Technology

Blockchain technology represents the final stage of this historic innovation trajectory, which has facilitated the ways in which human society collaborates and organizes itself. However, some of its unique features (its inherent neutrality, resistance to censorship, and decentralization) make it a collaborative technology that is not plagued by certain flaws of its predecessors.

As the Zeppelin team explains in "The Global Coordination Machine," Satoshi Nakamoto's solution to the Byzantine Generals problem has transformed the internet into a "global coordination machine." Blockchain technology has changed the "game," which determines and constrains how members of the global community access and exchange economic resources. Similarly, Virgil Griffith argues that thanks to Ethereum, theoretically any non-cooperative game can become a cooperative game.

For more on "The Global Coordination Machine," see https://blog.openzeppelin.com/the-global-coordination-machine-ed5aba8f6456/
For more on "Satoshi and the Byzantine Generals," see https://craigwright.net/blog/bitcoin-blockchain-tech/satoshi-and-the-byzantine-generals/
For more on Virgil Griffith's article, see https://medium.com/@virgilgr/ethereum-is-game-changing-technology-literally-d67e01a01cf8

Because they are distributed, permissionless open-source networks, public blockchains cannot be captured by privileged classes or interest groups—or at least, if they are truly decentralized and resistant to censorship, they should not be captured. Although certain powers may consolidate (for example, Eth holders in Chinese mining pools once the proof-of-stake transition is complete), Bitcoin and Ethereum allow anyone to join the network as a miner or validator. Both networks rely on minimal governance, a fact that theoretically should make them nearly impossible to capture. For more on governance minimization theory, see https://www.fehrsam.xyz/blog/governance-minimization

The consensus rules of public blockchain networks are not arbitrary but predetermined by code. Protocol implementations have public norms and cannot change balances and states (unless the system is attacked and a reorganization is successful). In the worst-case scenario, a public blockchain captured by interest groups may be "forked," allowing other stakeholders to choose to "exit" (a famous term from Albert O. Hirschman).

For more on "Exit, Voice, and Loyalty," see https://en.wikipedia.org/wiki/Exit,Voice,and_Loyalty

Due to the inherent network neutrality, early adopters of these technologies may gain economic returns from the appreciation of their crypto assets and the income earned as miners or validators. They will not be able to appropriate the infrastructure to maintain their interests at the expense of other stakeholders ("core" developers, entrepreneurs launching their own protocols and dapps, users, etc.). The process of updating or reforming the system is informal and requires consensus among different teams, making it very difficult to approve controversial upgrades.

So far, Bitcoin and Ethereum are the largest public blockchains in the world. The main metrics for measuring on-chain activity can prove this: total active addresses, total daily transactions, and daily transaction fees.

Both are significant milestones and represent a paradigm shift in the collaborative technologies that human society has used throughout history. They also share some common fundamental principles and goals—primarily the hope of positioning their native digital currencies as recognized means of storing value. But as I explained in the introduction, they achieve this goal in completely different ways.

Bitcoin—The Hedgehog, Ethereum—The Fox

Isaiah Berlin proposed in "The Hedgehog and the Fox" that humans can be divided into two categories: hedgehogs (those who understand the world based on a single guiding principle) and foxes (those who believe the world cannot be reduced to a single idea and thus pursue multiple goals). For more on "The Hedgehog and the Fox," see https://en.wikipedia.org/wiki/TheHedgehogandtheFox

Although this classification system is not perfect, it helps to understand the significant differences that characterize the two major public blockchain networks (Bitcoin and Ethereum) in terms of their features and developmental trajectories.

Contrary to what Aesop's fables tell us and what many extremists tend to believe, the hedgehog's approach is not superior to that of the fox. Isaiah Berlin explains in his work that both positions have their own advantages and disadvantages, and both have their pros and cons.

Bitcoin is the epitome of the "hedgehog," a network centered around a single guiding principle—security or predictability. The Bitcoin network has been optimized for a singular function and value proposition. It considers the most important aspect to be its lack of rivals in this regard: positioning its native currency (BTC) as the best store of value in human history (the hardest money).

Ethereum, on the other hand, is a purebred fox: a general-purpose smart contract platform that is vibrant, dynamic, and multifunctional. Ethereum is far from the clarity of Bitcoin; it is designed for various use cases, and its existence is not limited to satisfying a single value proposition but rather many. The challenge is that among these value propositions, one stands out that aligns with the same value proposition pursued by Bitcoin—that is, positioning its native currency ETH as the best store of value ever.

This largely explains why there is such fierce competition between these two platforms. Not only do these two technologies compete for the same value proposition, but they are also separated by a philosophical divide (and their respective communities).

In my view, in order to position their respective native digital currencies as the primary means of storing value and become collaborative technologies on a global scale, Bitcoin and Ethereum have only two choices: impose themselves on other collaborative technologies that currently occupy certain positions, or simply create a new niche market.

Like a good hedgehog, Bitcoin accomplishes its task in a rough and direct manner: it has a very clear concept of what the best store of value should be. And because it considers itself the best, it does not hesitate to compete head-on with other means of storing value in the physical space (such as states, financial institutions, corporations, laws, and armies, as well as commodities like gold and various fiat currencies that have so far maintained hegemony). This means that as a primary strategy, the Bitcoin network has chosen to compete face-to-face with other collaborative technologies (mainly fiat currencies). Currently, Bitcoin is claiming its own market for digital currency (BTC).

Ethereum, like a fox, is more cunning. It understands that the world is a complex reality filled with nuances and tends to avoid direct confrontation. Unlike Bitcoin, Ethereum's fully flexible and Turing-complete architecture allows it to create a new jurisdiction from scratch, rather than attempting to replace the current powerful nation-state status quo through direct confrontation with global currency reserves. A temporary autonomous zone will develop and absorb economic and human resources, ultimately becoming a true digital economic force.

What is a Temporary Autonomous Zone?

Hakim Bey coined the term "Temporary Autonomous Zone (TAZ)" as "a socio-political strategy that includes creating temporary spaces to evade the formal structures of social control." Thus, TAZ is a collaborative technology that cultivates creativity as an empowering tool and promotes effective coordination incentives for organizational forms, rather than coercing individuals.

The issue with this concept is that it is always associated with outdated pirate utopias (Libertalia) or interesting activities (such as the early Burning Man). However, the concept is very suitable for understanding what Ethereum looks like today: a collaborative technology that encourages the creativity of entrepreneurs and programmers, allowing for decentralized autonomous organizations (DAOs) and facilitating capital formation and free economic exchange.

Like all typical TAZs, Ethereum tended toward some media invisibility in its early stages of development (leaving the spotlight to Bitcoin). To avoid becoming a target for attacks from interest groups or political entities that may see a threat in this burgeoning new digital jurisdiction. For more on pirate utopias, see https://en.wikipedia.org/wiki/Pirate_utopia

Therefore, in my humble opinion, this will be the ultimate form that Ethereum will adopt after overcoming its current TAZ phase: a new sovereign jurisdiction, fully recognized worldwide by the simple force of established facts, which will serve as a mature economic entity within an international network of states (connected with geographic, cultural, political, and administrative aspects but with a digital nature).

Strategies to Become the Ultimate Collaborative Technology

Attempting to position a native digital currency as a global currency reserve and compete face-to-face with countries and their fiat currencies in the real world (as Bitcoin intends) is problematic. Why? Because governments and central banks will not voluntarily relinquish the immense privileges they derive from controlling the existing primary collaborative technology—currency.

I am not saying that Bitcoin will not become a safe haven in the future—it very well might, although it is somewhat niche, similar to gold. What I mean is that when your ultimate goal is to become a hegemonic currency reserve, the chances of success for the path taken by Ethereum are much greater.

History tells us that there is only one viable method for a challenger willing to replace the existing currency reserve: it must develop its economy until it catches up with and ultimately surpasses the current global powers—currently the United States.

If we conduct a historical analysis, we will see that the same process occurred in the early 20th century.

While the United States had been catching up with Britain in the previous decades, it was not until 1914 that the U.S. GDP finally surpassed that of Britain. After achieving this milestone, it took the dollar about five more years—until 1919 when Britain was forced to abandon the gold standard—to gain the status of the new world currency reserve. It took another 30 years for the new dollar system to be solidified under the Bretton Woods system.

According to Ray Dalio, there is often a time lag between an economy becoming a hegemonic owner and its national currency achieving the status of a world currency.
For Ray Dalio's article, see https://www.linkedin.com/pulse/big-cycles-over-last-500-years-ray-dalio/

Typically, the last thing a declining world power loses is its national currency's status as a world currency reserve. Currently, many scholars predict that the United States will not transition to a multipolar world but rather to a multipolar world, and that the decline of the U.S. will drag down the dollar's value while benefiting rising powers (such as China and its currency, the renminbi). In a multipolar world, the distribution of political, military, and economic power will be more widespread—some even point to the potential for power decentralization within nation-states. In the face of this new paradigm characterized by the atomization of power, having a public, neutral, secure, and expressive blockchain network will digitize much of the economic interaction between individuals, companies, and political entities, which is crucial for the world.

Ethereum (the network) can only fully realize its potential as the ultimate collaborative technology as a sovereign jurisdiction and global economic power. If Ethereum successfully achieves this, ETH (the asset) will have the opportunity to become a primary store of value and global currency reserve—which in turn will enhance its role as an important global collaborative technology.